Econ homework

Homework 1 (50 points total)

1. Economists say that individuals make decisions at the margin. What does this mean?

Give an example where you have made such decision  (3 points)

2. Define "Opportunity Cost".

What is your opportunity cost of attending this course for this month?  (3 points)

3. The PPF below shows Harry’s choices between studying economics and playing tennis per week. Us the graph in answering the following questions: (12 points) 

a. Explain what a point like g inside the PPF means. (3 points) 

b. Explain the movement from point g to point d . (3 points)

 

c. Explain the movement from point d to point e ? (3 points)

 

 

d. Explain point f . (3 points)

4. Real – Vs. – Nominal GDP

The economy of country X produces 3 goods: Bread, Butter, and Wine. Table below shows the prices and output of the 3 goods for the years 2015, 2016, and 2017.

You must round up to the nearest hundredth

	Bread	Butter	wine
Year	Price	Quantity	Price	Quantity	Price	Quantity
2015 Base year	$ 2.50	365	$4.00	182	$17	80
2016	$2.65	340	$4.70	170	$19	70
2017	$2.80	340	$4.90	165	$22	60

a. Calculate Nominal GDP in country X for each year. (6 points)

2015: $______________

2016: $______________

2017: $______________

b. Calculate Real GDP in country X using 2015 as the base year. (6 points)

2015: $______________

2016: $______________

2017: $______________

c. What can explain why Nominal GDP values differ from Real GDP values? (4 points)

5. CPI and Inflation

National University is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you to create an index of textbook prices. The average student purchases 4 English, 3 math, and 5 economics textbooks. The prices of these books are given in the accompanying table.

You must round up to the nearest hundredth

	2015 Base year	2016	2017
4 English textbooks	$130	$145	$155
3 Mat textbooks	$175	$189	$200
5 Economics textbooks	$190	$210	$245

a. Using 2015 as a base year, create a Consumer Price Index (CPI) for these books for each year. (6 points)

2015: CPI ______________

2016: CPI ______________

2017: CPI ______________

b. Calculate the inflation rate between years 2016 and 2017? (3 points)

6. Converting dollar value from one year to another

Supposed you earned $64,125 in 2015 when CPI was 237.05, to keep up with inflation what should your income be in 2018 when CPI has increased to 255.07? (4 points)

7. Use the concept of opportunity cost to explain the following .

a. Convenience stores, which have higher price than the supermarkets, cater to busy people.

(3 points)

b. More people choose to get graduate degrees when the job market is poor.

(3 points)

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